Movers and Makers: Industrial M&A Opportunities in 2021 and Beyond

October 11, 2021 | Blog

Movers and Makers: Industrial M&A Opportunities in 2021 and Beyond

By Mike Sabutis, Sr. Vice President, Sales

2021 has brought both tremendous growth and significant disruption in the manufacturing, logistics, and transportation sectors. Datasite convened a panel of leading industry figures to discuss what these trends mean for the mergers and acquisitions industry. The resulting conversation and Q&A, presented in partnership with Mergermarket, provide an exciting look at the prospects for the year ahead.

 Expect Ongoing Growth in Industrial M&A

Both viewers and panelists were bullish on industrial sector M&A volumes throughout the next year. 74% of the audience anticipated growth, with 18% forecasting strong growth and not a single respondent predicting decline.  The panelists agreed that the drive for transactions remains high on both sides of the table.

James Nappo, Managing Director at Stifel Financial, mentioned that the pandemic’s impact on the supply chain put many potential deals on hold. Now that those prospects are able to move forward again, he said, “There’s a whole cadre of M&A opportunities, particularly on the sell side, that are likely to begin moving.” And Datasite’s Senior Director of Product Marketing, Abby Roberts, confirmed that the company is seeing “a huge avalanche of deals coming towards the end of the year.”

Cambridge Capital’s founder and Managing Partner Benjamin Gordon highlighted a few other factors feeding demand, including huge underlying growth and the prospect of expensive tax reforms ahead.

He also pointed out that recent high-profile upsets in the supply chain - from semiconductor shortages to the Suez Canal blockage - have highlighted the crucial role of logistics in the world economy. Buyers and investors alike are taking notice.

Logistics Poised for a Revolution

Much of the discussion focused on transportation and logistics. In particular, the panelists emphasized that the twin pressures of supply chain challenges and increased consumer demand are prompting growth, innovation, and consolidation.

“Amazon is training the consumer to expect more, faster, and better,” Gordon said, pointing to last-mile shipping, return logistics, and supply chain visibility as major areas of opportunity.

Kris Hopkins, Managing Director at Houlihan Lokey, added that freight forwarding, and import-export brokerage are also seeing major growth, driven in part by the recent difficulties retailers have experienced with importing goods from Asia.

Other pressures for innovation include ESG concerns, particularly around climate change, and the growing onshoring movement. Often, these ideological issues go hand-in-hand with more pragmatic considerations about the bottom line.

“A container from Shanghai to Long Beach, which a year ago might have cost $3,000, today might cost over $20,000,” Gordon pointed out. In response to that increase, many companies are looking to bring more of their supply chains inside North America.

Another example: the growing demand for ESG data on climate impact is propelling growth in software-driven efficiency solutions that promise to reduce carbon emissions while also driving down costs.

Responses to the second viewer poll echoed the panel’s outlook, with 85% of answers predicting either growth or strong growth in deal volumes within the logistics and transportation fields.

Labor Shortages Remain a Stumbling Block for Growth

A hefty majority of the audience viewed the challenge in securing skilled labor as the biggest factor impacting the U.S. industrial supply chain. The panelists concurred that this has put a cramp on M&A deal upsides in some cases.

Hopkins said that some of his company’s transactions have had to contend with the fact that the lack of drivers, warehouse workers, and admin staff has cut seller profits - as much as 20-30% in some cases.

On the bright side, he noted, “When you have these constraints on personnel and capacity, that also spurs innovation.”

Ongoing Trends in Transportation

Moderator Sam Weisberg, Mergermarket’s Deputy Editor of Industrials, asked whether activity in the last-mile sector will slow down as Covid restrictions ease and people can leave their homes again. The experts argued that the clock can’t be wound back.

“I think Covid accelerated a long-term trend in demand,” said Roberts, “Even as Covid fades away...there’s been a transformation in the way people look to receive their goods.”

“This is much about habits,” Hopkins agreed. “Once people get in the habit of clicking the mouse and having the product delivered - there’s a lot of ease and efficiency to that.”

Nappo also suggested that the acceleration of vehicle electrification will further transform last-mile logistics. “Tens of billions of dollars in capital has been injected into companies that, two years ago, were barely able to keep the lights on,” he said. “Now they’ve got the funds available to begin investing and developing.”

He did note that the supply chain for this isn’t fully in place yet, so there will be some bumps on the road to implementation.

The Big Picture

The next 12 months promise to be an exciting time for industrial M&A. Companies everywhere are moving to strengthen and reshape their supply chains, while investors are fueling novel solutions to logistical challenges. Expect big things in the year ahead.